Margaret Is Trying to Decide Whether to Place Funds in a Qualified

question 51

Essay

Margaret is trying to decide whether to place funds in a qualified tuition program. Her son will be attending college in 4 years. She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments. Thus, $10,000 will accumulate to $11,948 (after-tax) in 4 years. Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years. Her son will be in the 15% marginal tax bracket in all relevant years. Given these assumptions, should Margaret participate in the qualified tuition program?

---

Definitions:

Defense to Payment

Legal defenses that a debtor may raise to avoid the obligation to pay a debt or claim.

Shareholder Sells

The process whereby an owner of shares in a corporation disposes of their stock to another party.

New Corporation

A business entity that has recently been formed and has obtained legal recognition from the state.

Benefit Corporation

A type of business structure that embeds social and environmental objectives into its charter in addition to profit-making goals.